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Title:Elasticity of supply to the firm and the business cycle PDF Logo
Authors:Depew, Briggs
Sorensen, Todd
Issue Date:2011
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5928
Abstract:A body of recent empirical work has found strong evidence that the labor elasticity of supply to the firm is finite, implying that firms may have wage setting power. However, these studies capture only snapshots of the parameter. We study this parameter over a period that provides substantial variation in the business cycle. Using a rich employee level dataset from the inter-war period, we are able to estimate the elasticity of supply to the firm during several recessions and expansions. Our analysis suggests that the elasticity is indeed lower during recessions, consistent with the comparative statics from the Burdett-Mortensen search model. This differential wage setting power over the business cycle provides an alternative explanation of the pro-cyclicality of wages.
Subjects:monopsony
labor market frictions
business cycles
JEL:J42
J31
J64
Persistent Identifier of the first edition:urn:nbn:de:101:1-20110927565
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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